The cost of credit can be expensive so protect yourself by learning how interest rates are figured and ways to save money when using credit. Protect yourself even more by learning your consumer financial legal rights, there are dozens of state and federal statutes protecting you every day.
What is the True Cost of Credit?
It lets you charge a meal on credit cards, pay for an appliance on the installment plan, take out a loan to buy a house, or pay for schooling or vacations. With credit, you can enjoy your purchase while you’re paying for it, or you can make a purchase when you lack ready cash. However, there are strings attached to credit and what is borrowed must be paid back!
You get credit by promising to pay in the future for something you receive in the present.
If you are thinking of borrowing or opening a credit account, your first step should be to figure out how much it will cost you and whether you can afford it. Then you should shop around for the best terms.
TRUTH IN LENDING requires creditors to give you certain basic information about the cost of buying on credit or taking out a loan. These “disclosures” can help you shop around for the best deal.
THE EQUAL CREDIT OPPORTUNITY ACT gives women a way to start their own credit history and identity.
THE FAIR CREDIT REPORTING ACT sets up a procedure for correcting mistakes on your credit record.
Credit costs vary. By remembering two terms, you can compare credit prices from different sources. Under Truth in Lending, the creditor must tell you–in writing and before you sign any agreement–the finance charge and the annual percentage rate.
The finance charge is the total dollar amount you pay to use credit. It includes interest costs, and other costs, such as service charges and some credit–related insurance premiums.
For example, borrowing $100 for a year might cost you $10 in interest. If there were also a service charge of $1, the finance charge would be $11.
The annual percentage rate (APR) is the percentage cost (or relative cost) of credit on a yearly basis. This is your key to comparing costs, regardless of the amount of credit or how long you have to repay it:
Again, suppose you borrow $100 for one year and pay a finance charge of $10. If you can keep the entire $100 for the whole year and then pay back $110 at the end of the year, you are paying an APR of 10 percent. But, if you repay the $100 and finance charge (a total of $110) in twelve equal monthly installments, you don’t really get to use $100 for the whole year. In fact, you get to use less and less of that $100 each month. In this case, the $10 charge for credit amounts to an APR of 18 percent.
All creditors–banks, stores, car dealers, credit card companies, finance companies-must state the cost of their credit in terms of the finance charge and the APR. Federal law does not set interest rates or other credit charges. But it does require their disclosure so that you can compare credit costs. The law says these two pieces of information must be shown to you before you sign a credit contract or before you use a credit card.
Even when you understand the terms a creditor is offering, it’s easy to underestimate the difference in dollars that different terms can make. Suppose you’re buying a $9,000 car. You put $1,500 down, and need to borrow $7,500. Compare the three credit arrangements below:
How do these choices stack up? The answer depends partly on what you need.
The lowest cost loan is available from Creditor C. If you were looking for lower monthly payments, (choice A or B) you could pay the loan off over a longer period of time. However, you would have to pay more in total costs.
Other terms–such as the size of the down payment–will also make a difference. Be sure to look at all the terms before you make your choice.
Debt Help Lawyers may be able to assist you in settling your debts, thereby freeing up your credit. You may be able to:
– Lower your interest rate!
– Save hundreds a month and thousands off your total debt!
– Stop dealing with creditors, let an attorney do that for you!
Call 888-595-9111 NOW for a FREE consultation and case review, or complete this easy online debt settlement consultation form!There may be instances where discussing your situation over a public forum could potentially compromise your interests. On these occasions we will contact you directly via email in order to answer your inquiry in a confidential manner.